The Bank of Korea has decided not to include Bitcoin in its foreign currency reserves due to high volatility and non-compliance with IMF standards.
Volatility and Liquidity of Bitcoin
The Bank of Korea emphasized that Bitcoin's high volatility poses a significant risk. During times of market turmoil, transaction costs can increase dramatically, complicating reserve management. Additionally, Bitcoin lacks the necessary liquidity and investment-grade rating required for currency reserves.
International Standards Issues
Bitcoin does not comply with the international standards for currency reserves set by the IMF, which require high liquidity, marketability, and investment-grade credit rating. Thus, institutions like the European Central Bank and the Swiss National Bank also refrain from including Bitcoin in their reserves.
Cryptocurrency's Future in Financial Markets
Although Bitcoin is increasing in price and popularity, its fundamental volatility and regulatory uncertainties remain obstacles to its adoption as a reserve. While some analysts predict continued Bitcoin price growth, central banks focus on stable financial instruments. This underscores the complexity of assessing risks for reserve assets.
The Bank of Korea's decision highlights the challenges of integrating Bitcoin into traditional financial systems despite its growing popularity. Central banks remain focused on stability and liquidity rather than speculative assets.
